4 ways to prep your finances prior to retirement

Prepping now will lead to smoother financial sailing during your long-anticipated retirement years.

Here are four ways to prepare your finances for your fast-approaching retirement years.

Credit cards

Don't lose money that could be used for your retirement on high-interest credit card debt, advises Kathleen Campbell, a certified financial planner at Campbell Financial Partners in Fort Myers, Fla.

"Work steadily to pay down any credit card debt, even if that means curtailing retirement savings in your 401(k), other than the company-matched portion," Campbell says. "Paying down debt costing 8 percent or 15 percent, for instance, just gives you that much of a return on those dollars."

Some soon-to-be retiring seniors may be carrying credit card debt because of late-in-life divorces or medical bills, according to Lisa Hatcher, a certified financial planner at Hatcher Bytes Financial Planning in Richmond, Va.

To eliminate the credit card debt, Hatcher recommends boosting income and reducing expenses.

"Take a part-time job and put earnings toward the debt," Hatcher says. "(You) may need to consider downsizing your major expenses of housing and transportation to live within your means and pay off the debt."

Car payments

Are you planning on a long retirement? There is a good chance you will need to purchase at least one replacement car during your non-working years, according to Andy Tilp, a certified financial planner at Trillium Valley Financial Planning in Sherwood, Ore.

"If you are five years out, it is important to consider the life of your current car and when it will need to be replaced," Tilp advises. "If you are a couple with two cars, and both will need to replaced, consider staggering the purchases, one in five years, then wait to get the next five years later.

"Use those five years to save the equivalent of a car payment. Then, when you are ready, you can buy the car for cash and not have your precious income going to paying interest."

Mortgage

Retiring without mortgage payments is a good goal for most seniors, says Hatcher.

"Most seniors should aim to pay off their mortgage before they retire or shortly after. It is a guaranteed rate of return to pay off your mortgage, versus keeping funds in a riskier asset for a higher return," Hatcher advises.

But if paying off a mortgage in advance would be too much of a financial strain, it may be better to hold off, Tilp counsels.

"If paying off the mortgage locks your money into the walls of the house and leaves insufficient funds to buy groceries, then this is obviously an untenable situation," Tilp says. "You can't eat your house."

Refinancing a mortgage may be a good strategy for seniors who plan on retiring with mortgage payments, according to Mark Petersen, vice president of Affluent Wealth Planning at Carson Wealth Management Group in Omaha, Neb.

"Refinance your mortgage to the lowest rate possible prior to leaving the workforce," Petersen advises. "My sister-in-law refinanced just prior to the recent increase in mortgage rates and just before her income was replaced by Social Security payments."

And before those paychecks stop, Campbell recommends tackling home maintenance projects such as a new roof or new air conditioning system.

"Better to pay for those while you're still working than to have to take large chunks from savings early in retirement," Campbell says.

Savings

The five years prior to retirement are also a good time boost up retirement savings, Campbell counsels.

"I suggest that pre-retirees beef up their savings so they've got ample savings to start with when they retire," Campbell says. "Retirement calculators that have results showing a retiree needs $1 million or $2 million to get through retirement can be counterproductive. For someone who has only managed to save $100,000 or $200,000, that million-dollar target is never going to happen. So everything needs to be in context and each person can only do their best."

Seniors with thinner retirement portfolios may want to consider working longer to extend their savings years prior to retirement, Campbell says.

"I do counsel some clients that working another five to seven years may be far preferable to a very long retirement, especially if savings dollars are thin."

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